After a profits warning  and the departure of chief executive Ben Gordon, where does the retailer go from here?

Mothercare

Why are we talking about it?

The maternity retailer is to part company with chief executive of nine years Ben Gordon.

Gordon’s shock departure comes after Mothercare issued a profit warning last week after its UK like-for-likes fell 9.6% in the 12 weeks to October 1 and total UK sales slipped 6.4%.

Gordon warned the outlook for the UK business had “materially worsened” and it was likely to lead to a disappointing performance for the whole year. 

He said consumer confidence had dipped following the riots in August and trading had further deteriorated in the past four weeks.

But it still has a thriving international business?

It does. Its international retail sales were up 17% over the period and it is planning to open a further 150 overseas stores in its current financial year.

Although its overseas sales are growing rapidly, the UK accounted for more than 50% of its sales in its past financial year.

The UK sales fall will hit its bottom line and as it is the biggest part of its business, Mothercare can’t just rely on its international arm for growth.

Why is it suffering in the UK?

The retailer has been struggling to compete with supermarkets, Argos and online players like Amazon and Kiddicare in terms of price.

Peel Hunt analyst John Stevenson believes its Early Learning Centre fascia is struggling the most.

“The toys market is price driven,” he says. “Early Learning Centre had a niche because its toys were educational, while supermarkets sold pink and plastic stuff.

“But there’s been convergence in those markets and it has lost its point of differentiation,” he said.

What can it do to revive the situation?

Stevenson believes the retailer is in a better position than most to turnaround its UK business.

He points out that it is cash neutral and has the flexibility in its store portfolio to re-engineer its cost base.

The retailer is already in the process of closing over a quarter of its UK stores. It will close 110 UK stores, of which 80 have leases expiring, and will renegotiate rents on a further 40 stores over the next two years in a move that will add £4m to £5m to profits each year.

However, more needs to be done to improve its top line. Seymour Pierce analyst Kate Calvert says it needs a radical change in pricing while Stevenson believes its core proposition must be reviewed to rediscover the brand’s point of difference from supermarkets and online stores.